Tough time for Buy-To Let Entrepreneurs

The property market in the UK which boomed in the 1990s is about to burst now. The estate agents have taken a backseat and even buy-to let landlords have started calculating their costs. First half of the year has already gone by and buy-to-let landlords are struggling hard with their repayments as mortgage rates which were fixed in easy terms for two to three years are due to end in 2009 and 2010 for most landlords. About 10,000 buy-to-let landlords have a three month backlog with their mortgage due.

With inexpensive deals from lenders in 2006 and 2007, buy-to-let market has experienced a boom over the past several years. However, the picture today has turned bleak mainly because of credit crunch and with the rise of mortgage rates on buy-to-let deals. Landlords who have purchased properties in recent years are now in negative equity as there has been a drop in the average house price by 10 per cent since it reached a height last summer and is expected to drop further. As a consequence, landlords could well be owners of a depreciating property in the future and repayments on the loan could be much more than what was required to buy the property.

Pension analysts say that it is a dangerous strategy to borrow in order to invest in property as in any other kind of investments as both losses and gains are magnified. Buy-to let property therefore should not be used as an alternative measure for pension. However, many feel that saving in the form of a pension scheme come with warning as with merits. Pensioners haven’t fared well like most people investing in other schemes over the last with share prices in UK falling drastically and even in one case more than house prices. Blue-chip FTSE index is low by as much as 19 per cent since last June. However, pensions promise to bring in tax relief and are a long term investment.

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